The Intellectual Property Office of the UK (UKIPO) has recently released a landmark report assessing the efficiency of the existing regulatory framework for Standard Essential Patents (SEPs) in the UK. The report is the result of a 12-week consultation process which took place between the end of 2021 and the first quarter of 2022 and involved engagement with industry stakeholders, academic experts, and legal professionals.

SEPs protect technological inventions which are deemed to be essential to implementing a technical standard. As such, technology implementers cannot adhere to technical standards without using patented inventions which comprise those standards. The report reaffirms the importance of creating an efficient regulatory environment for SEPs in relation to the UK’s broader ambition to become a global superpower for science and technology by 2035 and to ensure that the benefits of technical standards are enjoyed by producers and consumers alike.

While much of the evidence gathered in the consultation indicates that the current regulatory ecosystem is evolving, several consulted agencies raised concerns about inefficiencies and anticompetitive behaviour resulting from imperfections in the existing framework. It is perhaps unsurprising that divergent views emerged among those that offered criticisms.

Among considerations of licensing rate transparency, patent pools, and anti-suit injunctions, a great deal of the report focusses on analysing the legal and economic consequences of the existing regulatory guidelines for Fair, Reasonable, and Non-Discriminatory (FRAND) SEP licensing terms. As a voluntary agreement between standard-setting organisations and SEP holders, FRAND licensing terms are crucial for the harmonisation of the private interests of patent holders and the public interests of standard setters and innovators. One of the central findings of the consultation was that the underdetermined nature of the existing regulatory guidelines for FRAND terms has led to substantial misalignments between SEP holders and implementers.

The absence of consensus around what constitutes FRAND terms has led to SEP holders and implementers to accuse one another of adopting anti-competitive behaviours aimed at gaining greater market power in SEP licensing markets. On the one hand, SEP implementers claim that patent holders employ a strategy of ‘holding-up’ licensing agreements by intentionally setting licensing fees above a fair and reasonable rate while threatening implementers with injunctions in the case that terms were not agreed upon. Implementers also raise the issue of information asymmetries resulting from non-transparency among SEP holders who do not disclose the licensing prices of comparable SEP licensing agreements. On the other hand, SEP holders claim that implementers employ a strategy of ‘holding-out’ on licensing agreements in order to delay royalty payments and to put pressure on SEP holders to agree on lower licensing fees than would otherwise be deemed fair and reasonable. SEP holders also point to the disparity in economic resources between holders and implementers as the source of unbalanced bargaining power and legal resources in negotiations and disputes over FRAND licensing.

At the centre of these debates is the question of which reforms will best promote the creation of a competitive, efficient, and innovation-incentivising SEP licensing market. The UKIPO will assess various proposals for regulatory reform in collaboration with other relevant branches of the UK administration before it submits its findings to UK ministers in 2023. While it remains to be seen which proposals the IPO seriously considers as a means to correct for current inefficiencies and the litigious character of the environments, the consultation reaffirms the fact that more can still be done to build out regulatory guidelines for FRAND licensing terms and improve upon the existing SEP regulatory ecosystem.